PLR 1231018: IRS waives the 60-day rollover deadline after an account was mistaken for an IRA

Plain-English summary

The IRS considered a taxpayer who received a distribution from a cash or deferred plan and intended to roll it into an IRA. The taxpayer and her spouse believed that an online account was an IRA, but the account was actually a non-IRA account because of how it was opened. The taxpayer used an IRA deposit slip and marked the transaction as a rollover, but the financial institution did not identify the account problem before the 60-day period expired. The IRS waived the deadline under IRC § 402(c)(3)(B) and allowed 60 days from the ruling letter to make the contribution to an eligible retirement plan, subject to the other rollover requirements.

Ruling snapshot

• Question: Could the IRS waive the 60-day rollover requirement after a financial institution deposited a plan distribution into a non-IRA account?
• Outcome: Approved
• Key authorities: IRC §§ 402(c), 402(c)(3)(A), 402(c)(3)(B), 401(a)(31), and 6110(k)(3); Treas. Reg. § 1.401(a)(31), Q&A-15; Rev. Proc. 2003-16

Full text (IRS public release)

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DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
WASHINGTON, D.C. 20224

TAX EXEMPT AND
GOVERNMENT ENTITIES
DIVISION

MAY 11 2012

Uniform Issue List: 402.00-00

[illegible]

Legend:

Taxpayer A =

Company B =

Plan C =

Financial Institution D =

Account E =

Financial Institution F =

Amount 1 =

Dear [illegible]

This letter is in response to a request for a letter ruling dated November 21,
2011, as modified and supplemented by additional correspondence dated
March 1, and April 4, and 12, 2012, in which you request a waiver of the 60-day
rollover requirement contained in section 402(c)(3)(B) of the Internal Revenue
Code ("Code"), regarding the distribution of Amount 1 from Plan C.

The following facts and representations have been submitted under penalty of
perjury in support of the ruling requested.

Taxpayer A, age 39 at the time of distribution of Amount 1 from Plan C, asserts
that her failure to accomplish a rollover within the 60-day period prescribed by
section 402(c)(3) was due to a failure by Financial Institution F to follow her

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written instructions that Amount 1 be deposited into an individual retirement
account (IRA). Taxpayer A further represents that Amount 1 has not been used
for any purpose.

Taxpayer A participated in Plan C, a cash or deferred arrangement under
sections 401(a) and 401(k) of the Code, maintained by Company B. Funds in
Plan C were held by Financial Institution D. Taxpayer A represents that on or
around December 15, 2009, she and her spouse attempted to open an IRA with
Financial Institution F using the Internet. Not familiar with on-line financial
management, Taxpayer A relied on her husband to establish the IRA. Her
husband added his name to the account because he expected to manage it and
this caused Account E to be a non-IRA account. Both Taxpayer A and her
husband assumed Account E was an IRA. In late December Taxpayer A
separated from service and requested a distribution of her account balance in
Plan C. She received a check for Amount 1 dated December 21, 2009.

On January 5, 2010, Taxpayer A went to Financial Institution F to deposit
Amount 1 into Account E. Taxpayer A used a Financial Institution F document
marked “IRA Deposit Slip”, which she printed from Financial Institution F’s
website. On the deposit slip, she placed an X in the box marked “Rollover
Contribution”. When identifying the account where Amount 1 was to be
deposited, Taxpayer A entered the number for Account E, not aware it was a
non-IRA account. Taxpayer A assumed she had completed all of the required
actions for rolling Amount 1 into an IRA. Unfortunately, the employee who
processed the deposit of Amount 1 failed to confirm that Account E was an IRA
even though Taxpayer A used an IRA deposit slip and indicated it was a rollover
contribution.

Based on the above facts and representations, you request that the Internal
Revenue Service (“Service”) waive the 60-day rollover requirement contained in
section 402(c)(3)(B) of the Code with respect to the distribution of Amount 1.

Section 402(c) of the Code provides that if any portion of the balance to the credit
of an employee in a qualified trust is paid to the employee in an eligible rollover
distribution, and the distributee transfers any portion of the property received in
such distribution to an eligible retirement plan, and in the case of a distribution of
property other than money, the amount so transferred consists of the property
distributed, then such distribution (to the extent transferred) shall not be
includible in gross income for the taxable year in which paid. Section
402(c)(3)(A) of the Code states that such rollover must be accomplished within
60 days following the day on which the distributee received the property. An
individual retirement account (IRA) constitutes one form of eligible retirement
plan.

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary
may waive the 60-day requirement under section 402(c) of the Code where the
failure to waive such requirement would be against equity or good conscience,

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including casualty, disaster, or other events beyond the reasonable control of the
individual subject to such requirement. Only distributions that occurred after
December 31, 2001, are eligible for the waiver under section 402(c)(3)(B) of the
Code.

Section 401(a)(31) of the Code provides the rules for governing “direct transfers
of eligible rollover distributions”.

Section 1.401(a)(31) of the Income Tax Regulations, Question and Answer-15,
provides, in relevant part, that an eligible rollover distribution that is paid to an
eligible retirement plan in a direct rollover is a distribution and rollover, and not a
transfer of assets and liabilities.

Rev. Proc. 2003-16, 2003-4 I.R.B. 359 (January 27, 2003) provides that in
determining whether to grant a waiver of the 60-day rollover requirement
pursuant to sections 408(d)(3)(I) and 402(c)(3)(B) of the Code, the Service will
consider all relevant facts and circumstances, including: (1) errors committed by
a financial institution; (2) inability to complete a rollover due to death, disability,
hospitalization, incarceration, restrictions imposed by a foreign country or postal
error; (3) the use of the amount distributed (for example, in the case of payment
by check, whether the check was cashed); and (4) the time elapsed since the
distribution occurred.

The information presented and the documentation submitted by Taxpayer A is
consistent with her assertion that her failure to accomplish a timely rollover of
Amount 1 was due to a failure by Financial Institution F to follow her instructions
that Amount 1 be deposited into an IRA.

Therefore, pursuant to section 402(c)(3)(B) of the Code, the Service hereby
waives the 60-day rollover requirement with respect to the distribution of
Amount 1 from Plan C. Taxpayer A is granted a period of 60 days from the
issuance of this letter ruling to contribute Amount 1 into an eligible retirement
plan. Provided all other requirements of section 402(c)(3) of the Code, except
the 60-day requirement, are met with respect to such contribution, Amount 1
will be considered a rollover contribution within the meaning of section 402(c)(3)
of the Code.

No opinion is expressed as to the tax treatment of the transaction described
herein under the provisions of any other section of either the Code or regulations
which may be applicable thereto.

This letter is directed only to the taxpayer who requested it. Section 6110(k)(3)
of the Code provides that it may not be used or cited as precedent.

A copy of this letter ruling has been sent to your authorized representative
pursuant to a power of attorney on file in this office. If you wish to inquire about

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this ruling, please contact [illegible] (I.D. # [illegible]), [illegible] at ([illegible]) [illegible]-[illegible].

Sincerely yours,

Colbie A. Witte,

Manager
Employee Plans Technical Group 1

Enclosures:
Deleted Copy of this Letter
Notice of Intention to Disclose, Notice 437

cc: